tv Nightly Business Report PBS February 18, 2014 6:30pm-7:01pm PST
this is "nightly business report" with tyler mathisen and susie gharib. brought to you in part by -- >> the street.com. founded by jim cramer, the street.com is an independent source for stock market analysis. cramer's action alerts plus service is home to his multimillion dollar portfolio. you can learn more at the street.com/nbr. joining forces. drugmaker its buying forbes laboratories. shares of coca-cola have their worst day in more than two years. profit is down, so is demand for sugary beverages. what the company must do now to juice sales and the stock. home sweet home?
not this month. home builder sentiment plunges as the unofficial start to the spring selling season gets under way. is it a bad time for the housing market? we have all that and more tonight on "nightly business report" for tuesday, february 18th. good evening, everyone, and welcome. two big stories leading our broadcast tonight. one, disappointing earnings from coca-cola after sales in north america lost some of their fizz last quarter. that sent the stock sharply lower. more on the troubles at coke in just a moment. the other big story tonight, a megamerger in pharmaceuticals. ireland-based generic drugmaker activis agreed to by forrest labs for $25 billion in cash and stock. come being t combining two of the fastest-growing specialty drugmakers and possibly a harbinger of more in the health care industry. the ceo spoke today about the changing environment in the industry and the need to control costs.
>> as our environment changes the pharmaceutical space changes, one of the things we know we have to do is provide a broad range of product offerings to our customers, branded products and high quality generic products. that will be key. hospitals are looking for cost containment, physicians and the government. and i think we're well-positioned now to be the leader in that space. >> shares of forrest labs best known for its anti-anxiety pill lexapro and alzheimer's medication shot up nearly 28% while activis shares rose 5%. our guest tonight says today's big pharma deal could be a sign of what's to come in the health care sector. he's rich peterson, director of s and p capital iq. >> you heard our coverage of the activis deal. with the ceo there saying that pharma space is changing. they have to be cost conscious
when it comes to hospitals and insurers and all of that. as you look at this whole health care space, who are going to be the buyers and who are going to be the sellers? >> first, sue sin 2013 less tha billion announcements in the united states lowest number since 2004. one part of the downturn of activity last year was concern about what the impact was from the affordable care act. now it's basically a pent up of activity from deals that were deferred from last year. obviously the transaction today being the largest health care deal this year and the largest since express acquired medco in july 2011. overall well for the sector. the sector seeing steady revenue growth in the fourth quarter their expectations are for
double the s & p 500 more for revenue growth and earnings have been steadily rising. a lot of cash on the balance sheet. in terms of the companies that are expected to make deals, merck and pfizer have talked about shedding off some units that they feel are not growing as fast as they like. but in terms of companies, you have companies like med assets or alliance express areas that can provide investor opportunities. but i think as a sector, as i said, we had slow growth in 2013 in terms of -- >> rich forrest recently bought a k. i guess it's not just the drugmakers, specialty, generic that will be the buyers and sellers in the health care area. device makers, management companies, broader than just drug companies, right? >> now you're talking about corporate sponsors. private equity. in fact earlier this year the
caldwell group purchased a unit from johnson & johnson for over $4 billion. given the fact that the private equity firms have over $700 billion of dry powder that is unused capital, the health care sector could be one that is increasingly looking as targets. >> are these going to be big deals? this was a big deal. $25 billion is a lot of money. are we going to see smaller strategic deals, or are they going for big deals where in this new landscape bigger is better? is that the case? >> well, i think you can look over the numbers of transactions that occurred over the past six months. the average deal size was about $2.9 billion. so we're talking about the middle market of deal size. so $25 billion was the biggest over 2 1/2 years. today's deal is really the exception rather than the rule. in some cases companies look to acquire assets, divisions, units that are underperforming or just
trying to grow their footprint by buying companies that are privately held and not in the public marketplace. >> 30 seconds, rich. in the drug spaces being driven by pipeline concerns on these companies' parts? >> oh, very much. so the fact you have concerns, expirations of patents and pressure to grow opportunities. they have to look for new ventures. the fact as i said with the new regulatory environment, where companies are -- consumers are forced to look for cost savings, your companies are going to try to provide that. >> rich peterson with capital iq. teva pharmaceuticals, mylan, allergan seeing gains today. as tyler mentioned a moment ago, it was a different story for coca-cola stock today. coke was the biggest losed in the dow. shares fell near 4% and are down
almost 10% so far this year. investors were disappointed with coke's quarterly results out this morning. earnings were in line with estimates, and global sales rose last quarter but soda sales in north america tumbled. the news reinforced a nasty truth for coke. fewer americans are drinking sugary sodas, opting instead for healthier drink. now yes, coke does make some of those, too. dasani purified water, vitamin water, powerade drink, minute maid and wallace teas. the sweet stuff is still the company's bread and butter. that's a big problem for coke and the company knows it. >> joining us to talk more about coca-cola is dan verou of pal said capital management. good to have you in the studio with thus evening. would you be a buyer of coca-cola at this price? if not why not? >> not yet. because i think the challenges are not going to go away. if you look at the way the company is set up for 2014, it looks like it's going to be much or of a back end-loaded year for
them financially speaking. i really think there's no hurry. they're doing everything that they can do in the context of macro forces that are just too big for any company to outweigh, even a brand icon like coca-cola. >> the coca-cola ceo said today he was quoted as saying it was macroeconomic global charge challenges. but how many is it really the cyclical economic issues, and is it more that people are drinking healthier drinks and coke has a structural problem to deal with? >> the way i see it, in the u.s. diet coke was actually problematic for them. because people as you say are opting for more healthier choices, even though there's no calories in diet coke they don't perhaps like the contents of diet coke. so they're looking for organic alternatives for the calorie side, reformulation or enhancement to formulation for diet coke as well to spur growth
within the u.s. >> but the trend for healthy beverages is most notable in north america and the united states and the developed world. a lot of coke's growth has come, hasn't it, and won't it, from the developing world? >> there's no doubt about it. it wasn't enough to counter act the forces in the developed market this year. plus currency is playing some havoc with the results as well. >> stronger dollar hurts them. >> and those emerging market currencies are difficult to hedge against, because those markets are not liquid enough. you cowl certainly hedge against euro exposure given the size of the euro but you can't? inn some of the e merging markets. >> does coke really have to change its business model? you look at a company's competitor, pepsi, besides sugary drinks has food and snacks and all that. do they have to change their business model? >> i don't know but they definitely have to think out of
the box or out of the can if you will. their partnership with green mountain looks quite interesting. i don't know how that's going to evolve but that's yet another nonsoda pop product in the arsenal of their product line. so we could perhaps see them get more active in coffee or other products like that. >> would that be enough of a change? >> it seems to me like given the size of coke they'd have to do a series of acquisitions. certainly with their cash flow generation and their enormous ability to market, they could certainly go on a string of acquisitions that would give balance and offset. >> they've done some acquisitions. vitamin water, minute maid some years ago. what would it take for you to turn positive on the stock? >> tyler, we're in an environment right now where the market is paying for growth stories. look at some of the great growth companies this year, how well they've done. you're just showing organic top line growth is very difficult at
this time for me and for my colleagues at palisade to be excited about low single digit, zero to low single digit top line growth and bottom line growth. >> dan, thank you very much. good to see you. on wall street today, that big drop in coke stock held back blue chip dow. but the nasdaq managed to hit a 13 1/2-year high, notching its best eight-day winning streak since 2011. here's a rundown of today's split session for stocks. the dow lost 24 points, the nasdaq was up 28, and the s & p added 2 points. shares of the nation's biggest home builders all ending a bit lower today after a report showed that home builder sentiment is pretty gloomy. the closely watched index posted its largest monthly decline ever in february. and builders say snow and frigid temperatures in many parts of the u.s. mean buyers are in hibernation. that in term means fewer houses get bought or built. shares of d.r. horton, lanar,
pulty homes and others were down today. that record drop in home builder confidence in february has put bad weather in the cross hairs again. but some biuilders themselves sy that's not the only reason for this winter's housing slow down. >> reporter: sure the weather in much of the nation has been truly awful this winter. but not exactly historic. the drop in home builder confidence, however, is. a monthly index gauging sentiment fell 10 points from 56 to 46 in february, 50 is the line between positive and negative. this is the first time builders have felt negative since may of last year, and it's the largest monthly drop since the survey began in 1985. some blame this on too high expectations going into winter. >> we had a huge 2013 first half of the year. a lot of builders were hoping for a big volume push. it's very tough to get that volume right now given some constraints in the labor market,
given constraints in the land side, given the economy is not picking up that fast. >> reporter: builders had the least confidence in current sales conditions and buyer traffic. future sales expectations were down the least, but that one is based on visions of pent-up demand and the fact that we are headed into the spring season. >> this is typically the heart of the selling season now. and this is really when buyers are out, when this weather clears i think it's going to allow people to get out to the sales offices and our traffic should pick up again. >> we just love going to open houses. >> reporter: brian and ali cunningham braved the snow in northern virginia to visit a president's day open house. the holiday is the unofficial start of the spring housing season, but many visitors were just kicking the tires. >> we bought at a very good time the first time we bought. now we're just kind of looking around. >> reporter: as home prices rise, confidence is coming back to the housing market. but affordability is also weakening. that has some buyers caught in the middle.
>> i feel like there's more movement in the market buying and selling. so in terms of timelines how long it would take to sell your home. >> i think there's a small possibility we'd buy within the next year. it does feel like everything is falling a little bit right now. >> all real estate is local. while you can blame the weather for slow sales in much of the nation, home builder confidence actually fell the most in the west. that's the one region where weather wasn't a factor at all. but it is the area where home prices have shot up the most and where affordability is the worst. for "nightly business report," i'm diana olick in silver spring, maryland. still ahead on "nightly business report," outside the box. can small tech start ups compete with the likes of microsoft, ibm and google? and transform the way companies manage their data? that's coming up.
iran is playing hardball as multinash tal multinational talks resumed in vienna. when talks opened today iran said it would not buckle under pressure from the u.s. and other western nations by scrapping its nuclear power plants. this has been a key demand by the six nations hosting the talks. another global hot spot erupted today and markets are sure to keep an eye on developments overnight and into tomorrow. anti-government protests in kiev, ukraine turned violent tonight when riot police tried to drive two armored personnel carriers through an encampment in the city's independent square. protesters have been holding of there living in tents for about three months. tonight some of those tents were set ablaze. there have been reports of gun fire. and late this evening local time of more than a dozen deaths.
japan's stock market soared higher today, gaining more than 3%. the rally came after the bank of japan announced new measures aimed at sparking economic growth in japan. doubling the size of the central bank's lending fund. that move comes on news that japan's economy grew at a much slower pace than expected at the end of last year, despite massive stimulus policies. that money won't help japanese automakers which are getting slammed by snow storms just like we're having here in much of the u.s. manufacturing was suspended at some of japan's biggest auto plants after heavy weekend snow closed roads and shut down deliveries of parts. all the big carmakers including toyota, nissan, honda, mazda, subaru, temporarily halted operations after the weekend storms but they have now resumed production. an update now on a story we brought you last week. the vote was close but workers at a volkswagen plant in tennessee rejected a proposal to unionize under the united auto workers banner.
it's a big defeat for the union's long-term plans to organize auto plants in the south. now the uaw may be looking to organize workers at a mercedes plant in alabama and a nissan factory in mississippi. well, blackberry gets a big powerful shareholder and that's where we begin tonight's market focus. dan loebs third point revealed it has a 10 million share stake in blackberry. the hedge fund now has a 1.9% position in the company, making it the fifth largest shareholder. the troubled smartphonemaker also scored an upgrade from svr capital because of recent changes at the company and positive momentum. that helped lift shares more than 5% to $9.46. passengers flying on united airlines suffered widespread delays this morning because of problems with the company's computer reservation system. the flight tracking site, flight aware, reported that 16% of the airline's flights were delayed as of midday but that was also caused by weather issues in parts of the country.
shares of united continental fell to 33.66. norwegian cruise line posted better than expected earnings. the results beat estimates by a penny but revenue came in shy of analysts' forecasts. the company said it was pleased with a solid performance during a challenging year for the industry. but investors weren't impressed. shares fell to 43.56. shares of waste management took a hit after the company posted an earnings miss. the nation's largest garbage hauler and recycler swung to a fourth quarter loss because of high asset impairment charges and higher accruals from incentive compensation. the company's outlook also missed the street's estimate. now shares plunged 4.5% today to $41.72. and boeing selected everett, washington as the site to build wings for its new 777 x aircraft. the company currently builds 777 jetliners in that same location. this is a shift in strategy from the large-scale outsourcing to
overseas suppliers that cause big delays on the 787 jet. shares of boeing up a fraction today to $130.63. and there may be a new stock you can trade soon as the london-based video gamemaker behind candy crush saga, an addictive game made popular on facebook, has filed paperwork for an initial public stock offering. king digital hopes to raise half a billion dollars trade shares here in the u.s. starwood capital is considering to begin selling stock to the company. it's behind the w hotel chain, also other real estate concerns. the next big ipo in the tech sector could be a company called box. it's become a market leader in the fast-growing world of cloud storage. it's just one of several start ups taking on the biggest names in silicon valley, disrupting the tech sector's status quo. julia boorstin has more. >> reporter: box has reportedly
filed confidentially to go public. the ceo won't comment on ipo plans, but it's clear that 225,000 businesses helping to manage and share information wants to steal market share from giants like microsoft. >> we're investing very aggressively for growth right now. that's something that we're very happy about and excited about as we see a window of opportunity with this market where the leaders of the next generation of software are going to be created right now. so we're investing to ensure that box is one of those leaders. >> reporter: the market box is tackling, cloud tool for businesses, grew 20 or $30 billion and growing 25% annually in a market where i.t. spending is growing at single digits. the big question now is which of the tech giants are looking over their shoulder fearing disruption by box and other start ups which take software services to the cloud. >> it's the emcs, the citrixs.
or an sap. really any of the traditional have vendors where quad mobile is a potential opportunity. it also is a threat. that's where i think box will go after. especially a name like microsoft has to look out for boxes. and i think it speaks to just the massive market opportunity where a young company like this is really making waves in the enterprise sector. >> box isn't the only start-up looking to gain market share. drop box which started focusing on individual consumers and has pivoted to serve more businesses has a market cap of $10 billion as of its last fundraising round while box is valued at about 2 billion. levy is trying to distinguish box from drop box with its focus on companies. to distinguish itself from the giants with the start-up approach. >> we're a 1,000-person company but we still act and operate and can move at the speed of a very smart start-up.
that lets us be very disruptive. as soon as new platforms emerge we tend to focus on whatever the new ways that people want to work are. that lets us make decisions much faster and innovate more quickly. >> we'll see whether box and drop backs manage to steal share from their bigger rivals and whether they're snapped up by larger competitors. for "nightly business report" i'm julia boorstin in los angeles. coming up, technology is changing the way kids play and what parents buy in the toy aisles. leaving big questions about the future of the multibillion business. the toy story next. a new hurdle for president obama's initiative to raise the nation's minimum wage to $10.10
hour. the nonpartisan congressional budget office says it would increase earnings for more than 16 million americans by the year 2016 and pull an estimated 900,000 of them out of poverty. but it would also eliminate a half million mostly low-wage jobs. g.o.p. has assailed the plan as a jobs killer. americans went on a borrowing binge at the end of 2013. and so household deficits are on the high side. u.s. households that surged by more than 2% in the final quarter of last year. that doesn't sound like a lot. but it is the biggest jump in about six years. most of that new debt was from mortgage loans but there were increases in student debt, auto loans and credit card spending. one bright spot, home equity lines of credit declined. and finally tonight, the calendar says february, but toymakers and retailers are already working on this year's holiday shopping season. and they're doing it at the annual toy fair across the river
in new york city. john ford now with a look at some of this year's high tech and surprisingly low tech offerings. >> reporter: there's no business like the toy business. from wooden blocks to solar-powered vehicles here at the annual toy fair in new york, some things are changing but some things are staying the same. what's changing? smart phones are having a big impact on what we do for fun. we spend about $22 billion a year on toys in the u.s., not including video game systems and apps. >> we believe in giving people the opportunity to play our toys and games at any format they want anytime and anywhere. we set out a blueprint about five years ago to do this between the studios and digital gaming. we have great digital games coming out. out. >> reporter: the types of crafts and toys popular this year offer three dimensional experiences you can't easily match on a touch-screen. >> ten years ago people were afraid that kids would stop
playing because of technology. what we've seen evolve in the last ten years is the way the toymakers are making with seamless integration of technology and to be able to recognize that kids aren't turning away from toys. >> $40 my virtual design pro is a great example. color a dress in the coloring book, snap a picture with your phone and watch a video of a model wearing your design. with the success of tlego movie others like are likely to be popular this summer. light bright, updated for a new generation. for every 30 to $60 toy on a phone or tablet there's a set of blocks with the retro flair. for "nightly business report,"
i'm john fort. >> legos and blocks. >> and old wooden blocks. >> that's "nightly business report" for tonight. i'm susie gharib. thanks for joining us. >> and welcome back from your vacation. i'm tyler mathisen. have a great evening, everybody. we'll see you back here tomorrow night. "nightly business report" has been brought to youin part by -- >> the street.com. founded by jim cramer, the street.com is an independent source for stock market analysis. cramer's action alerts plus service is home to his multimillion dollar portfolio. you can learn more at the street.com/nbr.
tonight on revolutionaries. >> our tag line is smarter planet, but it's all about information technology moving out into other problems that the world was becoming our lab. >> in nearly a century of innovation, the research labs of ibm produced breakthroughs from microchips to the computer. dr. john kelly talked with us about the ambitious agenda he is pursuing. funding is provided by the intell corporation. >> we are so glad to have you here tonight, john. you and i had a pretty fun